Under what circumstances related to willful misconduct or gross negligence will Stretch Zone reimburse a franchisee for losses?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
(c) Despite Section 8.15(a), you have no obligation to indemnify or hold harmless an Indemnified Party for, and we will reimburse you for, any Losses (including costs of defending any Proceeding under Section 8.15(b)) to the extent they are determined in a final, unappealable ruling issued by a court or arbitrator with competent jurisdiction to have been caused solely and directly by the Indemnified Party's willful misconduct or gross negligence, so long as the claim to which those Losses relate is not asserted on the basis of theories of vicarious liability (including agency, apparent agency, or joint employer) or our failure to compel you to comply with this Agreement, which are claims for which you are not entitled to indemnification pursuant to this Section 8.15(c). However, nothing in this Section 8.15(c) limits your obligation to defend us and the other Indemnified Parties under Section 8.15(b).
Section 8.16 NO WAIVER OR DISCLAIMER OF RELIANCE IN CERTAIN STATES
The following provision applies only to franchisees and franchises that are subject to the state franchise registration/disclosure laws in California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, or Wisconsin:
No statement, questionnaire, or acknowledgement signed or agreed to by Franchisee in connection with the commencement of the franchise relationship shall have the effect of (i) waiving any claims under any applicable state franchise law, including fraud in the inducement, or (ii) disclaiming reliance on any statement made by Franchisor, any franchise seller, or any other person acting on behalf of Franchisor. This provision supersedes any other term of any document executed in connection with the franchise.
Source: Item 8 — Receipts. Any sale made must be in compliance with § 683(8) of the Franchise Sale Act (N.Y. Gen. Bus. L. § 680 et seq.), which describes the time period a Franchise Disclosure Document (offering prospectus) must be provided to a prospective franchisee before a sale may be made. New York law requires a franchisor to provide the Franchise Disclosure Document at the earliest of the first personal meeting or ten (10) business days before the execution of the franchise or other agreement or the payment of any consideration that relates to the franchise relationship. (FDD pages 99–263)
What This Means (2025 FDD)
According to Stretch Zone's 2025 Franchise Disclosure Document, a franchisee may be reimbursed for losses under specific conditions related to the franchisor's conduct. Specifically, Stretch Zone will reimburse a franchisee for losses, including the costs of defending legal proceedings, if a court or arbitrator issues a final, unappealable ruling determining that these losses were caused solely and directly by Stretch Zone's willful misconduct or gross negligence.
However, this reimbursement is contingent upon the claim not being based on theories of vicarious liability, such as agency, apparent agency, joint employer, or Stretch Zone's failure to compel the franchisee's compliance with the agreement. In such cases, the franchisee would not be entitled to indemnification. It's important to note that this reimbursement provision does not limit the franchisee's obligation to defend Stretch Zone and other indemnified parties.
This means that while Stretch Zone franchisees are generally responsible for defending and holding harmless the franchisor, there's an exception when Stretch Zone's own actions are the direct cause of the losses. However, the franchisee still has an obligation to defend Stretch Zone even in cases of willful misconduct or gross negligence on the part of Stretch Zone. This clause appears to apply only to franchisees and franchises that are subject to the state franchise registration/disclosure laws in California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, or Wisconsin.